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Three corporate political activity proposals from the 2021 proxy season explained
- Political contributions proposals traditionally seek disclosure of (direct and indirect) campaign financing policies and practices, but are also starting to ask companies to explain how political expenditures align with their corporate values and policies—apart from their climate-related statements.
- Traditional lobbying proposals typically ask for disclosure on companies’ lobbying policies and practices.
- Climate-related lobbying proposals are fairly new; these ask companies to explain how their lobbying efforts align with the Paris Agreement.
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Corporate political activity was under the microscope in 2021 as events not only in Washington, DC, but in state capitals across the country increased media and stakeholder scrutiny on legislators supported by corporate political action committees (PACs). This scrutiny included questions about companies’ positions on legislation in a variety of E&S areas where companies hadn’t traditionally expressed a view.
The overall volume of filed corporate political activity proposals in 2021 remained relatively steady compared to the prior year, indicating that other stakeholders—particularly employees—drove the changes in corporate political activity more than shareholders. According to a recent survey of government relations executives and PAC managers by The Conference Board, multiple factors contributed to 2021’s environment for corporate political activity. More than three-quarters (77 percent) of respondents cited the frequent emergence of new sociopolitical issues on which companies were pressured to take a stance, 69 percent cited employee attention, and 57 percent cited the board and senior management. Despite investors’ increasing focus on E&G issues, only 32 percent of respondents cited investors as contributing to 2021’s tough landscape.1 In the Russell 3000, during the first half of 2021, shareholders filed 64 proposals on political activity, on par with the 66 filed in the same period last year.2
One area that did see an uptick in shareholder interest was climate-related lobbying: it rose to 11 in 2021 from 4 in 2020, whereas the number of proposals filed on political contributions remained essentially steady (26 in 2021 versus 27 in 2020), and shareholders filed fewer proposals on traditional lobbying (27 in 2021 versus 35 in 2020).
Achieving compromise on proposals on corporate political activity was more difficult than on most other topics. But it was easier to reach negotiated resolutions on political contributions and climate-related lobbying proposals than on traditional lobbying proposals: proponents withdrew 38 percent of proposals on political contributions and 45 percent on climate-related lobbying in 2021. By contrast, only 15 percent of traditional lobbying proposals were withdrawn (only one corporate political activity proposal—on political contributions—was omitted in 2021), indicating that companies were less able to find common ground on these proposals.
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Why it can be difficult to negotiate with proponents on traditional lobbying
Compared to other E&S issues, continued dialogue and compromise between proponents and companies on corporate political activity was hard to reach in 2021, especially with respect to traditional lobbying. This is at least in part because what proponents ask for in these proposals isn’t always the issue they want the company to focus on. Additionally, as part of negotiating a withdrawal, proponents often ask companies to make public statements on specific topics unrelated to the core business, and companies often decline to do this. Taking a public stand is increasingly challenging in this era of intense polarization, with stakeholder views on all sides of the political spectrum, which is why some companies have decided to focus on policy rather than engaging in politics. At the same time, discontinuing their political activities isn’t a realistic solution for many companies.3
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As with other E&S shareholder proposals, support for shareholder proposals on corporate political activity reached record levels (42 percent in 2021 versus 36 percent in 2020). Of more than 20 different topics covered by E&S shareholder proposals in 2021, proposals on climate-related lobbying had the second-highest level of average support—at 61 percent (versus 42 percent in 2020)—behind only EEO-1 data disclosure proposals, which averaged 69 percent. Moreover, the 46 percent average support for political contribution proposals and 37 percent for traditional lobbying were well above the average 32 percent support for all E&S proposals, as well as higher than the 40 percent and 32 percent they respectively garnered last year.
While companies in all business sectors face scrutiny for their political activities, those in energy, utilities, and industrials received all the proposals voted on climate-related lobbying. Companies in the industrials and health care sectors received the most filed and voted proposals on traditional lobbying and political contributions.
How CEOs and boards can prepare for corporate political activity proposals
To prepare for shareholder proposals on political contributions, traditional lobbying, and climate-related lobbying, CEOs and boards can take concrete steps, including:
Increasing board oversight of their lobbying and other political activities in addition to their corporate contributions. This might include approving broad principles and processes for corporate political activity.
- As a result of today’s intense political polarization and ever-greater scrutiny of corporate political activities, some companies may choose policy over politics and decide to limit political contributions or avoid making them altogether.
Expanding educational and engagement efforts with key audiences—and increasing disclosure to investors and other stakeholders regarding their organization’s political activity and policies, as well as controls in place.
- Focus on employees—they were a significant driver in making corporate political activity challenging in 2021.
- Explain the role of PACs, because the press, employees, and others conflate corporate giving and PAC giving—even though corporate-sponsored PACs are funded by voluntary contributions from employees, not by corporate funds.
- Clarify the process for deciding whether and how to communicate PAC decisions, including changing contribution criteria—and be mindful that the legal, communications, and government relations functions may have conflicting views on publicizing PAC decisions.
Vetting all political activity and aligning political contributions and lobbying with corporate values to make sure their public policy positions match their broader corporate citizenship positions.
- Keep it straightforward: the more complex the corporate political activity, the more difficult it may be to manage reputational risk.
- Thoroughly vet third-party organizations to which the company donates money, including the governance process in place to control their activities, and ask for reports on how they are using company funds.
- Involve the corporate citizenship function in reviewing political activity.
- Adopt (or have the PAC adopt) a policy for political contributions that includes the company’s and employees’ values as part of the framework for managing political activities.
These steps may not prevent shareholder proposals, but they will put companies in a better position in dealing with them.4
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This brief is part of a suite of seven reports: 2022 Proxy Season Preview and Shareholder Voting Trends (2018-2021). Visit conferenceboard.esgauge.org/shareholdervoting to access and manipulate our data online.
[2] The data and figures in this report and all six supplemental briefs represent shareholder proposals submitted at Russell 3000 companies in the first half of 2021, 2020, and 2018. About 90 percent of shareholder meetings at Russell 3000 companies take place in the first half of the year, and this cutoff point also allows easy comparisons with our prior-year shareholder voting benchmarking reports.]
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